Background:-
In terms of Rule 171 of the General Financial Rules, 2017 (“GFR 2017”) prescribes conditions for obtaining performance security for the execution of goods and works contracts. The Rule prescribes that the performance security is to be obtained from the successful bidder which is awarded the contract amounting to 5% – 10% of the value of the contract as specified in the bid documents. The validity of the performance security is for a period of 60 days beyond the date of completion of all contractual obligations of the supplier including warranty obligation.
The invitation was given to the Department of Expenditure vide O.M. No. F. 18/4/2020 – PPD dated 19.2.2020 wherein it was clarified that disruption of supply chains due to the spread of the Coronavirus in China or any other country would be considered as extraordinary events or circumstances beyond human control and would be termed as a natural calamity. It was, therefore, advised that wherever considered appropriate, after following due procedure as stated in para 9.77 of the Manual for Procurement of Goods 2017, “Force Majeure Clause” (FMC) may be invoked.
Since the issue of the said O.M., restrictions have been placed on the movement of goods, services and manpower on account of the lockdown situation prevailing in the country in terms of the guidelines issued by the Ministry of Home Affairs (MHA) in terms of the Disaster Management Act 2005 (D.M. Act 2005) and executive orders of the respective States and U.T. Governments. Under such situations the payment cycle too has got disrupted due to the restrictive measures, on account of which some contractors, who have otherwise fulfilled their contractual obligations, are facing liquidity problems impacting their future performance. In some cases, it may not have been possible for a contractor/supplier to fulfill all his contractual obligations in terms of the contract. Public interest lies in quick resumption of economic activity. Therefore, in the following circumstances:
- where an application is made by a contractor who is not in default of any contractual obligations or;
- where FMC is invoked by a contractor and the requirements of FMC are fulfilled;
the contracted (Government Department/Agency) may return the value of performance security to the contractor supplier as is proportional to the supplies made/contract work completed to the total contract value
Clarification:-
The Department of Expenditure vide O.M. No. F. 18/4/2020 – PPD dated 13.05.2020 has clarified that if the contractor/ supplier is in violation of the contractual obligation, the contracted shall be under no obligation to take action as per these guidelines. It is further clarified that the guidelines contained in the present OM shall apply only in respect of such non-performance as can be attributable to a lockdown situation or restrictions imposed under any Act or executive order of the Government/s on account of COVID-19 global pandemic. These guidelines are issued under Rule 6(1) of GFR 2017.
The Notification can be accessed at: http://www.a2ztaxcorp.com/wp-content/uploads/2020/05/Performance-Security-in-terms-of-Rule-171-of-GFRs-2017-Guidelines-regarding.pdf